Fidelity Investments Institutional Services Co. Inc. is the latest fund company to turn to financial advisers to perk up sales of tax-free college savings programs.
The Advisor College Investing Plan, unveiled last week, is the Fidelity Investments units first 529 college savings plan to be sold exclusively through brokers and advisers.
These plans, which refer to section 529 of the Internal Revenue Code, are qualified accounts that let families save money for childrens (or grandchildrens) college tuition. Starting next year all withdrawals from these programs will be tax-free under President Bushs tax-cut plan.
Fidelitys Advisor College Savings Plan, which is sponsored by the state of New Hampshire, offers 10 different investment options, more than most 529 plans offer.
Ellyn McColgan, the company president, said in a July 31 conference call that these options will make it attractive for advisers to sell.
Eight of these options are age-based funds that shift their asset-allocation strategies over time. The other two are static portfolios that invest either largely or entirely in equities, said Mike Kellogg, the executive vice president of distribution at the Fidelity unit.
If they wish, investors can allocate their money among all 10 investment options. Advisers can add value by helping these people in their allocation decisions, Mr. Kellogg said.
A study by Fidelity found that the investing public is largely ignorant about 529 plans. For example, Ms. McColgan said, 84% of the investors it polled were not aware that 529 plans withdrawals will be completely tax-free starting next year. Also, only 18% were aware of the differences between 529 plans, prepaid tuition plans, education IRAs, and gifts under the Uniform Gifts to Minors Act.
The large sales role for advisers in the Fidelity 529 plan has made it more attractive to distributors, Mr. Kellogg said. The company has already struck deals with First Union Securities Inc. in Glen Allen, Va., Dain Rauscher Inc. in Minneapolis, and Wells Fargo & Co. in San Francisco to sell the new product to their customers, Mr. Kellogg said.
The diversity and complexity of 529 plans make them well-suited for the adviser market, said Joseph F. Hurley, the chief executive of Savingforcollege.com, a 529-plan consulting firm in Pittsford, N.Y. The fact that these programs are so different from each other means advisers who understand 529 plans can add a lot of value, he said.
Fidelity is not the first fund company to offer adviser-sold 529 plans, Mr. Hurley said. Others that have done so include American Express, Strong Funds, Putnam Investments, Alliance Capital Management, and Franklin Resources.
Nor is this New Hampshires first 529 plan: Fidelity also offers the Unique College Investing Plan, a 529 product that is sold directly to individuals and has eight investment options.
The Advisor College Investing Plan is Fidelitys third 529 program and its first to be sold through intermediaries.
Ms. McColgan said the 529 market is expected to grow to $10 billion by yearend. We believe advisers will be a critical part of that growth.
The market currently has assets of $4 billion to $5 billion, Mr. Hurley said. Ed Nigro, the vice president of new business at the Fidelity unit, said Fidelitys three plans account for about $1 billion of that amount.
